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Comtech Telecommunications Corp. (NASDAQ:CMTL)
Q3 2019 Earnings Call
Jun 6, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Comtech Telecommunications Corp. Third Quarter Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, June 6, 2019.

I would now like to turn the conference over to Mr. Jason DiLorenzo of Comtech Telecommunications. Please go ahead, sir.

Jason DiLorenzo -- Vice President of Tax

Thank you, and good morning. Welcome to the Comtech Telecommunications Corp. conference call for the third quarter of fiscal year 2019. With us on the call this morning are Fred Kornberg, Chief Executive Officer and President of Comtech; Michael D. Porcelain, Senior Vice President and Chief Operating Officer; and Michael Bondi, Chief Financial Officer.

Before we proceed, I need to remind you of the company's safe harbor language. Certain information presented in this call will include, but not be limited to, information relating to the future performance and financial condition of the company, the company's plans, objectives and business outlook and the plans, objectives and business outlook of the company's management. The company's assumptions regarding such performance, business outlook and plans are forward-looking in nature and involve significant risks and uncertainties. Actual results could differ materially from such forward-looking information. Any forward-looking statements are qualified in their entirety by cautionary statements contained in the company's Securities and Exchange Commission filings.

I am pleased now to introduce the Chief Executive Officer and President of Comtech, Fred Kornberg, Fred?

Fred Kornberg -- Chief Executive Officer

Thank you, Jason. Good morning, everyone, and thank you for joining us on this call. This morning, we will be discussing our results for our third quarter of fiscal 2019. As you can see from yesterday's press release, our third quarter results excelled on many fronts. We continue to generate strong operating results, closed on the acquisitions of both Solacom and the GD 911 business and we are well on our way to making fiscal 2019 another successful year.

In fact, given the successful execution of our business strategies to date, we have increased our fiscal 2019 revenue goal to be approximately $660 million and increased our 2019 adjusted EBITDA goal to be $90 million. Both of these metrics are approximately 15% more than the amounts we achieved last year. As I mentioned before, our third quarter results exceeded our expectations. Our business momentum remains positive and our pipeline of opportunities remains strong. In fact, if order flow remains strong as it has and we achieved all of our fiscal 2019 business goals, it is possible that actual results could be higher than our targeted amounts.

Now, I'll turn it over to Mike Bondi, our CFO, who will provide a discussion of our third quarter financial results and some details about our fiscal 2019 guidance. Then Mike Porcelain, our COO, will provide a discussion of our business segments, as well as some initial thoughts about fiscal 2020, and then I'll come back before opening up to questions-and-answers.

And I'll now transfer it now for Mike.

Michael Bondi -- Chief Financial Officer

Thank you, Fred, and good morning, everyone. As announced yesterday afternoon, our net sales in Q3 of 2019 were $170.4 million. Our GAAP operating income was $11.3 million and our adjusted EBITDA and non-GAAP financial measure was $24 million. From a geographic perspective, net sales to U.S. based customers were 73.6% of total net sales with 26.4% to international customer. Bookings of $331.2 million for the third quarter were truly remarkable, and resulted in a consolidated book-to-bill ratio of just under 2.0. Both our Commercial Solutions and Government Solutions segments achieved book-to-bill ratios in excess of 1.

We also finished the quarter with record high consolidated backlog of $747.1 million, and when you include the unfunded portions of multi-year contracts, including IDIQ contracts that we have received, we have more than $1 billion of visibility into future revenues. Our gross profit percentage in our third quarter of fiscal 2019 was 37.8%, which was slightly higher than the 37.3% we achieved in Q2 of fiscal 2019. The increase from 37.3% to 37.8% is largely due to a more favorable product mix occurring in our Government Solutions segment. For fiscal 2019, we expect that our consolidated gross profit percentage will likely approximate a little north of 37%.

SG&A expenses were $33.4 million for the three months ended April 30th, 2019 or 19.6% of consolidated net sales. SG&A expenses include $2.5 million of estimated contract settlement costs related to an ongoing repositioning of our enterprise technology solution offerings. For the year, SG&A expenses are expected to approximate 20% of net sales. Research and development expenses were $13.5 million for the third quarter fiscal 2019 or 7.9% of consolidated net sales. Of the $13.5 million, we spent $11.6 million in our Commercial Solutions segment and $1.8 million in the Government Solution segment, with the balance representing the amortization of stock-based compensation, which is recorded in our unallocated segment. For the year, we expect R&D expenses to be higher in dollars, but lower than the percentage we achieved in fiscal 2018 due to the expected increase in fiscal '19 net sales.

Total stock-based compensation expense during Q3 of fiscal 2019 was $1.1 million, and for fiscal 2019, we expect stock-based compensation expense to approximate $12 million. The ultimate amount will be dependent on the finalization of FY19 incentive awards, which are anticipated to be largely awarded in the form of fully vested but restricted stock units. Like we did for the past two years, we believe these awards align our employees and executives with shareholders, as these awards cannot be sold for at least a one-year period.

Amortization of intangibles was $4.5 million in the third quarter of fiscal 2019 in light of the closing on the acquisition of the GD Next Generation 911 business, we now expect intangible asset amortization for Q4 to approximate $5.2 million, and for the fiscal 2019 (Technical Difficulty) of net sales. For the first nine months of 2019, we achieved GAAP operating income of $31 million or 6.3% of net sales. Excluding the $2.5 million of estimated contract settlement costs and $1.7 million of acquisition plan expenses, our consolidated operating income for the third quarter of fiscal 2019 would have been $15.5 million or 9.1% of consolidated net sales.

Looking forward and inclusive of $2.2 million of additional acquisition plan expenses and estimated contract settlement costs in the fourth quarter, we believe that we will finish fiscal 2019 with GAAP operating income as a percentage of consolidated net sales of around 5.5%. Excluding all estimated contract settlement costs, acquisition plan expenses, the favorable settlement of intellectual property litigation and facility exit costs, operating income as a percentage of consolidated net sales for fiscal 2019 is expected to approximate 7%. This represents an increase from the 6.2% we achieved in fiscal 2018.

Our adjusted EBITDA was $24 million or 14.1% of consolidated net sales for the three months ended April 30th, 2019. Adjusted EBITDA in our Commercial Solutions segment was $16.7 million or 18.6% of related net sales. Adjusted EBITDA in our Government Solutions segment was $11.3 million or 13.9% of related net sales. Assuming we achieve our fiscal 2019 goals of $660 million in revenue and $90 million of adjusted EBITDA, adjusted EBITDA as a percentage of consolidated net sales will be similar to the 13.7% we achieved in fiscal 2018.

Now let me talk about interest, taxes, EPS, cash flows and our balance sheet. Interest expense was $2.2 million for the third quarter of fiscal 2019. For the year, we expect interest expense to approximate $9.4 million. On the tax side excluding discrete items of $600,000 in the third quarter of fiscal 2019, our effective tax rate was 23%. On the bottom line, GAAP net income was $7.6 million or $0.31 per diluted share for the third quarter of fiscal 2019, an $18.9 million or $0.78 per diluted share for the nine months ended April 30th, 2019. This quarter we are providing comparative non-GAAP metrics to give investors a better sense of our improved operating performance since fiscal 2018.

Excluding acquisition plan expenses, estimated contract settlement costs and discrete tax items, our non-GAAP net income for Q3 2019, was $10.3 million or $0.42 per diluted share. And for the nine months of fiscal 2019, non-GAAP net income was $25.4 million or $1.05 per diluted share. The year-to-date non-GAAP metrics for the nine months are over 200% higher than the comparable non-GAAP metrics for the comparable period of the prior year. For the full year we expect our fiscal 2019 non-GAAP EPS to be $1.22, which would represent a non-GAAP EPS growth rate of 62.7% when compared to the $0.75 we achieved in fiscal 2018.

One of the best ways you can see the strength of our third quarter and year-to-date performance is to look at our GAAP cash flows from operations. Here, our cash flows were extremely strong at $40.8 million for the third quarter of fiscal $2019, and $53.8 million for the first nine months of fiscal 2019. In fact, our balance sheet at April 30th, 2019 reflects $45.2 million of cash and cash equivalents, and our total debt outstanding was $175 million, despite the fact that we spent $35.9 million for the acquisitions of Solacom and the GD Next Generation 911 business during the quarter.

Although there are a number of things that can shift both ways. At the moment, we expect operating cash flows for the fourth quarter to be approximately breakeven. So as we stated in our last conference call, we expect $50 million or so of GAAP cash flows from operating activities for fiscal 2019.

Now, I will hand it over to Mike Porcelain to provide some recent developments and additional color for each of our two business segments. Mike?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Thank you, Michael. Clearly based on our strong operating results, we believe our business strategies, including our acquisitions are paying off. Let me give you some perspectives by segment.

First, net sales in our Commercial Solutions segment were $89.6 million this quarter. Bookings in this segment were exceptionally strong coming in at $230.6 million with a book-to-bill ratio of 2.57. Our book-to-bill ratio includes the benefit of a large $100 million plus Next Generation 911 award. This quarter was a terrific one for our satellite earth station product line where related quarterly bookings were the highest this year. It was also an exceptionally busy quarter for HEIGHTS bookings and product introductions. HEIGHTS orders this quarter include awards from SES Networks for equipment to support its global mobility services from Claro Argentina to connect world communities for cellular backhaul. These are important and great customer references.

As mentioned in the past, although HEIGHTS products have long sales cycles. I am pleased to state that we are achieving our fiscal 2019 goals for this product line. In fact, bookings through the first nine months of fiscal 2019 have exceeded that for all of fiscal 2018. Given market perception for HEIGHTS is favorable, we continue to invest in R&D, and this quarter, we announced an expansion of the HEIGHTS product line with a new low-cost, high-performance H-Pico Remote Gateway. This new product allows us to expand our addressable market and allows us to sell to smaller customers, who have a need for HEIGHTS performance, but at a lower cost.

Given the number of new High Throughput Satellites or HTS Satellites as they're sometimes referred to that are launching and plan, we believe this product line will contribute to sales growth for our satellite earth station product line for many years ahead.

Now let me turn to our safety and security technology solution line, where things are going very well. In fact, irrespective of the acquisitions of Solacom and the GD 911 business, sales for Q3 of fiscal 2019 were higher than any quarter since we first acquired the TCS business. No doubt, we are truly excited about our acquisitions. Both of them are already having a positive impact. In fact, just before the quarter ended, we did receive that $100 million plus Next Generation 911 award. This five year contract valued in excess of $100 million is to develop, implement and operate a Comtech Next Generation 911 emergency communication system for the Commonwealth of Massachusetts.

This system will consist of a cloud-based -- cloud IP-based Next Generation 911 system and we are working to improve the existing system, providing best-of-breed solutions to this customer. Let me give some color on this important contract win and the GD 911 acquisition.

For many years, General Dynamics successfully served as the prime integrator for this customer and we played a small role on this prior contract that is expiring in August 2019. GD recently completed a large multi-billion dollar military acquisition and they wanted to focus on other markets. So we began working with the Commonwealth and GD to convince this customer to assign the existing contract to us an award us a new five year contract. It took a lot of work and a lot of meetings. Ultimately, after nine months or so of effort, we were successful and we were awarded the contract. As such, in order to fulfill this new contract, Comtech agreed to purchase GD state and local government 911 business, and immediately hired 60 employees. This was a really nice acquisition for us and we are pleased to welcome the many talented employees who have now joined Comtech.

Additionally, we want to publicly thank our own employees, our partners, and of course, the Commonwealth. This $100 million plus win is very important. First, it solidifies our market leadership for Next Generation 911 systems. When viewed in the context of the existing NG-911 system that we operate for the State of Washington, this contract award gives us important and well respected customer references on the East Coast and on the West Coast. Second, because these systems are extremely complex and critical, customers are reluctant to change vendors. Thus we hope to generate annuity type or repeat revenue for many years.

Finally, the acquisition enables us to provide more integrated NG-911 solutions to state and local public safety agencies. In fact, we are focusing our efforts on this already. Since the closing of the Solacom and GD acquisitions, we've been chasing a number of large promising opportunities in other states, and over time, we believe we will win more than our fair share. Given all of this activity, let me spend a few moments talking about existing competitive and customer dynamics in the 911 market, and how we intend to compete and grow.

First, as a reminder, Comtech first entered the 911 space in February of 2016 with the acquisition of TCS. Now with the recent acquisitions, we are clearly a market leader in this space. To date, customer reaction to the Solacom and GD 911 acquisitions have been extremely positive. We believe customers understand our strategy and interest in our solutions are increasing. We continue to spend significant R&D funds in this area and are focusing on developing integrated solutions that work with not only our products, but others as well.

On the competitive side, there has been various consolidation within the industry. Not only did Comtech acquire two companies, but Motorola, largest competitor has purchased several companies in the call handling space, and AT&T continues to partner with West Corporation. Given that we have a very small market share of cal handling today, we believe we can grow. Our systems are being refreshed and updated around the country. As it relates to AT&T, we best describe our relationship with AT&T as a competitor.

For example, during the quarter, AT&T awarded us $6.7 million of orders to us, but at the same time, they informed us that they would move of their 911 call routing solutions to a competitor West Corporation, on its offshore spaces. This decision by AT&T was not surprising to us and we have prepared for it, when we won 100% of the business for Verizon.

In fact, for the past year or so, we have worked to expand our relationships with other customers such as Comcast. We have and expect to continue our success with these efforts. Looking forward, we have a strong base of backlog and growing opportunities and end market conditions for our Safety and Security products remains healthy. In short, we believe that in aggregate, this business is on track to grow in our fiscal 2020.

Now let me turn to -- our attention to our Enterprise Technology Solutions Group. As first discussed in our Q2 conference call, we began an evaluation and repositioning of these location-based products to focus on providing higher margin solutions. Today, we offer a number of mapping and text messaging applications for end-customers. Many of these solutions are repeat type or annuity type revenue and generate good profits for us. However, at the same time, we also provide certain miscellaneous mapping and location services to several customers, which have lower margins or which have limited technology lives. The ultimate goal of our repositioning of our location mapping products is very similar to the 2016, 2017 successful repositioning that we did in our legacy TCS government products group. As such, when we think about revenues for this product line in 2020, it will be lower, but hopefully with higher profits.

Our repositioning is well on its way. And to date, we have decided to cease performing certain contracts and are letting contracts to expire without renewals. For example, in Q2, we ceased developing our VirtuMedix platform and have stop performing certain location services for customers, where as we were simply not making any money. In Q3, we worked with Verizon and are no longer supporting their family Locator product line, and we also expecting our Verizon navigated business to dwindle with revenues being nominal in 2020. Our Enterprise product line includes all TCS legacy call handling solutions. And in connection with our decision to wind this product -- wind down and settle certain customer contracts, we did record a $2.5 million charge in Q3 of 2019, which Mike Bondi had mentioned. In fiscal 2020, all of the remaining contracts will be serviced by Solacom.

On on the R&D side, we continue to invest in certain key technologies and areas of growth, such as public safety. All in all, through fiscal 2019 -- fiscal 2019 will be a year of solid growth. And when you add it all up, we still believe that fiscal 2020 can be even better.

Now let me turn to our Government Solutions segment, where this segment itself had a banner quarter. Net sales were $80.8 million, as compared to $57.9 million in Q3 of fiscal 2018, representing a substantial increase of 39.6%. Our Bookings in our Government Solutions segment were strong. In fact we exceeded bookings for each of the first and second quarters of fiscal 2019. Our book-to-bill ratio was 1.24, and during the quarter, we did receive a number of important orders and contracts.

For instance, we received a $42.6 million of orders to supply Manpack Satellite Terminals, networking equipment and other advanced VSAT products to the U.S. Army. These orders

booked pursuant to our $223.4 million Global Tactical Advanced Communication Systems or GTACS contract with the U.S. Army's Program Management Tactical Network, which has a remaining unfunded contract value of $47.3 million as of April 30, 2019. We did also receive $19.8 million of orders to provide ongoing sustainment services to the U.S. Army for the SNAP terminal program. We also received $5.2 million of funded orders from the U.S. Army for option year two under our existing Blue Force Tracking sustainment contract.

We also received a $3.5 million follow-on satellite service order from a major national security solutions provider, and a $2.6 million contract for high-power amplifiers from the U.S. military. With all of this activity, fiscal 2019 will be a year of significant growth for the Government Solutions segment. Looking forward, we have a strong pipeline of opportunities still have to book, and 2020 for this segment is starting to look like a solid year.

Now let me turn it back to Fred, who will provide some closing remarks. Fred?

Fred Kornberg -- Chief Executive Officer

Thank you, Mike. As I mentioned previously, I too, am very pleased with how our business is performing to date. Fiscal 2019 is expected to be a terrific year for Comtech. We believe also that our full-year fiscal 2019 expected results illustrate the earnings power of our business and our product leadership positions. Looking at the fiscal 2020, I'm increasingly excited about our future prospects and the positive trajectory of our business. I think we are well positioned as Mike said, for another strong year in fiscal 2020.

Our business unit management teams are focused on consistent execution, a healthy balance sheet and generating strong cash flow. Overall, we believe our business strategies will drive shareholder returns over the very long term. Given our strong business outlook, our Board of Directors declared a dividend for the fourth quarter of fiscal 2019 of $0.10 per common share. This is payable on August 16th, 2019 to shareholders of record at the close of business on July 17, 2019.

Now I'd like to proceed to the question-and-answer part of our conference call. Operator?

Questions and Answers:

Operator

(Operator Instructions) And we'll take our first question from Asiya Merchant with Citigroup. Your line is open.

Asiya Merchant -- Citigroup Inc. -- Analyst

Hi. Hope you can hear me. Congratulations to the team. It was a very strong quarter. Quick question. On the two acquisitions that you've now closed, can you give us some guidance on how they performed during the quarter? What the impact was, how should we think about the outer quarter? And then, as we look forward into fiscal '20 there is a lot of commentary lot of commentary on this trend expected. So just first, some initial guidance and how we should think about fiscal '20 as you lap fiscal -- the strong results that you're demonstrating in fiscal '19? Thank you.

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Sure. So Solacom is a relatively small acquisition. So we did have -- we will have about four to five months of results in the 2019 numbers. We don't want to give out some color on it because of the competitive reasons that I mentioned earlier. But you can think about the business as growing on the top line and accretive to our numbers in 2019 as well as 2020. On the GD side, the GD 911 acquisition, I think we only had like two days or something of results in Q3 numbers. So we'll have a full quarter of results. And without divulging information regarding our exact plans, we did talk about $100 million plus contract over five years.

So if you want to just simply do the math of 100 divided by 5, I think that's the way you should think about the GD acquisition. And then obviously, as we win new programs with all of the solutions that we're working on, we'll provide them to you. But from our perspective, the GD was competitive, it was important for us to win and we did so. At the end of the day, it is accretive to our numbers, but it was a competitive -- it was a competitive deal.

Asiya Merchant -- Citigroup Inc. -- Analyst

Great. And so on the margins, if you can just talk about -- as you look out into fiscal '20, how do you guys think about the margins within the two segments. Obviously Government had a very strong year in fiscal '19. How should we think about it in fiscal '20?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Yeah. And I'd say it's a fair question. First of all, our government side. We had a spectacular quarter. In fact, our backlog going into Q3 increased from where we were at Q2. At the same time, as we mentioned earlier, Q4 is going to be lower than our third quarter in that segment. And as we look forward, some of these solutions that we booked during the quarter are not expected to ship until 2020. So for us, it's a little too premature to give you some guidance on where the segment information is going to come out.

But I think all in all, when we are looking at our business, I think we just focus on our adjusted EBITDA. And from a percentage increase, we think we can do better than the 13.6% adjusted EBITDA margin that we're somewhat targeting for 2019.

Asiya Merchant -- Citigroup Inc. -- Analyst

Great. Thank you.

Operator

And we'll take our next question from Chris Quilty with Quilty Analytics. Your line is open.

Christopher Quilty -- Quilty Analytics, Inc. -- Analyst

Thanks. Mike, based on your comments, I don't think you're going to answer my question. But I was going to ask what the contribution from Solacom was in the quarter, just to figure out the organic growth rate in the commercial side of business?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Yeah, you're right. I'm not going to answer the question. But Chris, I think there are a couple of things when we look at organic side and stuff. And I would refer you to my comment about the safety, security product line being at the highest it was since the acquisition. That did not include the General Dynamics contribution in our third quarter. And my comment about Solacom being small is accurate. So we do have organic growth in our safety security product line, it's pretty strong actually. And at the same time, we're offsetting some of that, we're still working through our repositioning in our enterprise and mapping location business. So when you think about that, we have the Navigator business.

I think when we bought the business at TCS, maybe it was around $20 million or so on an annual basis. And since then, we've been working that off and sort of investing the legacy profit if you will, into new business line. So that $20 million next year is going to be virtually gone. So when we think about organic growth, it's up when you ate it all up. It's much higher in the safety security line and it's lower on the mapping side, simply because those Verizon contracts have now really wound down and we're really not going to talk about them anymore.

Christopher Quilty -- Quilty Analytics, Inc. -- Analyst

Got you. Also on the backlog, obviously, you picked up the -- or I'm sorry, the order book, you picked up a $100 million from the GD acquisition. Was there also a substantial orders that were contributed from Solacom?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Yes. Solacom had healthy quarter of bookings.

Christopher Quilty -- Quilty Analytics, Inc. -- Analyst

Okay. And a question on -- what the margin profile of that business should look like? I mean as we go into 2020, is there going to be a substantial change due to the mix of the business relative to what we've seen historically?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

I think when you added all up, it is going to be a function -- in consolidation of what we do on the government side. How much revenue will we get from the Government segment is going to ultimately drive the consolidated number, because obviously, the more Government segment revenues that we get in total level pull that margin down. But if you look at what we did in Q3 on commercial side, for example. We did a little under 19% adjusted EBITDA margins, 18.6% to be precise. And then if you actually look at what we did in our Government segment at 13.9%, that was pretty impressive and well above our target of let's say 10%.

We think we've hit our target for the year. So when we're thinking about fiscal 2019 by segment we're probably around 18% to 19% for the Commercial Solutions segment, including the impact of GD, which is now sort of in there for the quarter. So if you run the math right, we're still above about 18% or so. We are thinking for the Commercial Solutions segment. On the government side, we are expecting -- just simply because of timing, probably the lowest quarter of revenue in the Government Solutions segment in Q4. I don't think we're going to get to that 10% margin number in Q4. But for the year, we'll be double-digits and I think that's the starting point. That's whey I say, when we add it all up and we think about next year, we think at the end of day, we should be higher than next year.

Our commercial business we think is certainly going to grow. Government is a little bit of a question mark in terms of how much growth we will have. But when you still add it all up, we have lumpiness, but we still think we're going to be higher than the adjusted EBITDA percentage margin and in terms of dollars as well.

Christopher Quilty -- Quilty Analytics, Inc. -- Analyst

Got you. And you mentioned it, but I think these were record EBITDA margins for the government business in Q3? Was there any one particular, one time gains or issues in there? Or was this just a strong quarter with strong mix and good operating leverage?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

No, it's exactly -- exactly said. We did $80 million plus of revenue and almost 14%. And if you go back Chris, just for another data point. You go back to Q1, we did 11.2%, 11.6% So we've been really working efficiencies and cost reduction efforts , as well as product mix improvements and something that is going to continue. But again, our Q4 revenue in the segment is going to be a lot lower than what we just achieved. So margins won't be at 10%. But yeah, we think we hit the 10% goal that we set at the beginning of the year. And again, it's a little too premature for us to tell you what that number would be for 2020, but in aggregate, we think we're going to be higher.

Christopher Quilty -- Quilty Analytics, Inc. -- Analyst

Got you. And final question. You really didn't mentioned much about either troposcatter or Blue Force Tracking. And if there's been no change, that's fine. I'm assuming that's the reason, that wasn't mentioned. But any particular updates with either of those programs? I know that on a TROPO, the announcement came out that Raytheon was awarded the contract from the Army?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

That's right. I would say, it's probably the most important comment or update to make to you is that, the way we're looking at 2019 and 2020, they're not on our thinking can from our financial modeling or our numbers. If they happen, it's going to be great. But let me address the two programs specifically and tell you. So yeah, during the quarter, there was a public announcement by the Government that Raytheon was awarded the contract, and obviously the U.S. Army program -- protest is over. There is an announcement that's out there that the U.S. Marines have decided to move forward with their own program and we're in he process of responding to that RFP with our existing partner, if you will.

The fact that the army program is over. And I think we've mentioned this before, it does give us an opportunity to work on the U.S. Army program and we're going to try to figure out a way to do that and get back in there. But for the moment, we're not considering ourselves to have any revenue in that program and we'll ultimately see what the Marines does. But again, that's not in our numbers and our thinking camp for next year, that would be upside to our thought process.

On the Blue Force Tracking side, yeah, nothing has really changed. With the exception of continued conversations with the U.S Army, we are expecting to receive some smaller R&D funded orders that are somewhat critical in the sense to their strategy, and we hope to announce them soon, but we're not ready to. But if we do get those contracts, I think that's a great strategic point for where that -- where the decision point may ultimately go to. But again, we're not thinking about that. It's just too binary for us and nothing in our numbers.

Christopher Quilty -- Quilty Analytics, Inc. -- Analyst

Very good. Thank you.

Operator

And we'll take our next question from Joe Gomes with Noble Capital. Your line is open.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Good morning, and great quarter, guys.

Fred Kornberg -- Chief Executive Officer

Thank you.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Quick question. Did you see -- or believe you've seeing here some pull forward of some business into Q3 to that -- by looking at your Q4 guide, it's about $164.5 million of revenue that would be down year-over-year, and it is below what the consensus estimate for revenues for the fourth quarter were. So I was just wondering if you might have seen some of the revenues that you originally expected in the fourth quarter were pulled into the third?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Yeah, the short answer is absolutely. Our government business in particular is lumpy, so that's really what drove that. And if you just do the math, our government business was -- $88.8 million this quarter versus $57 million last year. So there's a 38% increase now. I'd love to grow at 38%, but that's just not going to -- that's not going to happen. So, yeah, part of the reason why our Q4 number is changes, we do get pulled in from the government business into Q3. So yes, that did happen.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Okay. And seeing as -- as things are going so well here recently. I mean, what are you guys looking at that could be -- that could upset the apple cart here? What are your major concerns going forward that would be a momentum changer from what we've seen recently?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Well. Joe, that's actually a great question. And I would say to you at the moment, we've kind of considered our concerns in our guidance. I would almost tell you that, our guidance would have been higher than what we said. But in light of what's happening in China for instance and some of the trade issues that are out there with Huawei. I mean we are a supplier to Huawei and stuff. We've taken them out of our numbers. China, we do sell, a couple of million dollars a year of equipment to them. We've taken them out of our numbers. So we're not expecting to be able to ship to Huawei next year and in Q4. We've taken them out of our thinking cap.

Same thing with China. We just think for political reasons until things settle down. That's not going to be, but those were the concerns that we do have, and from a business perspective, we are focused on them every day. We want to figure out how to ship to our customers and meet their needs. So we are actually focusing on it. But from a numbers' perspective, we've taken them out of our thinking cap and giving you the guidance that we think is very achievable to hit. And we're feeling extremely confident about where we're headed. In terms of 2020.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Great. Thanks. And again, great quarter.

Fred Kornberg -- Chief Executive Officer

Thank you.

Operator

We'll take our next question from Mike Latimore with Northland Capital. Your line is open.

Michael Latimore -- Northland Capital -- Analyst

Okay, thanks. Yeah, excellent quarter. Just to be clear. Mike I think you said, that, you think that FY'20 Commercial segment could be even better than FY '19. Are you basically saying you're expecting some growth there? Is that the basic interpretation?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

I'm sorry, which segment did you say? I couldn't hear.

Michael Latimore -- Northland Capital -- Analyst

Commercial.

Michael Bondi -- Chief Financial Officer

Yeah, our commercial business, I think will ultimately grow in terms of revenue and EBITDA contribution, yes.

Michael Latimore -- Northland Capital -- Analyst

Okay. And between the repositioning of some of the products in that segment, and then the AT&T that you mentioned. What is the combined kind of revenue amounts that are associated with those two factors?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Well, all those are -- I did call out or Verizon Navigator business as a whole, because I think if you go back over the last three years, that's about $20 million worth of revenue that we are effectively absorbing in our organic growth rate. So in our Commercial segment, one way to think about it is our net net of the AT&T decision. Our satellite earth station business is growing, our Safety and Security business is growing and our ENT business is going to be down a lot next year. But all in all, that Commercial segment is going to grow and a lot of that growth is organic.

Michael Latimore -- Northland Capital -- Analyst

Okay, great. And then on the statewide Next-Gen 911 opportunities. You talked about seeing some a large opportunities there. I guess, I assume you are already pursuing those prior to the GD acquisitions. So I'm just kind of curious how far into some of the sales cycles are you on some of these? How long have they been going on?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Well actually, it's an interesting question. There were some programs that we were not actually chasing. The GD 911 business had some key relationships in there which is one of the things that was pretty attractive to us. So we actually -- because of the GD acquisition are now in a couple of different opportunities that we were not in. And then there are a couple of states, California being one of them that has been a program that's out there. But the California program, and I don't know the exact dates on this, so don't hold me to this. It sort of came out I think after we did the Solacom acquisition.

And while we were talking to GD and the Commonwealth. So as we were going through our proposal process, we put forward together a combined solution that we think is very attractive and I'll use California as an example, because it is a public RFP. And I actually think the response is just went in, maybe a week ago or maybe they're doing this week. But the timing is right around here. So we weren't too far into the opportunities I guess is the ultimate answer here. These new opportunities are coming out there. The states are moving in. We've talked about this business being at a gross inflection point. And although it's lumpy similar to the government business, right? We can't tell you when we're going to get $100 million contract, but there is an example of how it comes.

But from our perspective, we're clearly the market leader. We we're doing in the state of Washington on the West Coast, a key customer reference and now we have convinced the state of -- the Commonwealth of Massachusetts on the East Coast. So we think we're the only ones. We have the two largest contracts we think in the United States in this stuff. And when you talk to companies like Ohio and California, we're very excited about our opportunity. And now it's just up to us to win.

Michael Latimore -- Northland Capital -- Analyst

Got it. And then on HEIGHTS, the wireless backhaul opportunity there. Is that a big part of the pipeline? Or was the Claro thing kind of more of a one-off here?

Michael Bondi -- Chief Financial Officer

No, the Claro was not one-off. But again, we've always talked about having key customer reference point. So having Claro purchase the equipment down in that part of the world is very, very helpful to us from a customer reference point and we continue to do testing, let's say, including in North America or in spot. So again, long sales cycle in the business. But now that we're seeing some of these names and our customers are being playful enough to allow us to use their names out there as customer reference points, that's going to be hopeful we think in terms of closing additional deals.

Michael Latimore -- Northland Capital -- Analyst

Sure, sure. Okay, thanks a lot.

Operator

And we'll take our final question from George Notter with Jefferies. Your line is open.

Kyle McNealy -- Jefferies -- Analyst

Hi, guys. This is Kyle on for George. Thanks a lot for the question, and congrats on the results. Wanted to ask a little bit more about the GD acquisition. And maybe if you can add anything around the shape of how that revenue might come in. Will it be more ratable? Is it going to be pretty regular over the course of that contract? Or will it be front-end or back and back-end loaded. I believe I saw one of your disclosures that it starts in August, the beginning of August. So anything you can add there on how we should think about how that comes in would be helpful.

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Yeah, you're correct on the date. So I would tell -- with the Public Safety business as a whole, Kyle is similar to the SaaS, software as a service models that we have. I mean we don't call it out like that, but it is sort of software as model business. It's a cloud-based solution that we're selling through the state, Commonwealth of Massachusetts. So in simple terms, it's a $100 million plus contract. The $100 million divided by 5, it's $20 million a year for that contract starting in August.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Okay. Great, thanks a lot. And then I guess kind of connected to that, how much of the backlog addition this quarter and the bookings. I know you mentioned that $100 million went into the bookings this quarter. Between GD and Solacom, how much of the backlog was acquisition related and how much of the bookings were acquisition related?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Well, from a mathematical point, right? Our backlog -- we finished at $747 million. So if you just take off that $100 million plus contract, you are at $647 million. And again, without putting a number on there, Solacom is a small company and growing. And I don't want to say anything else other than that. So most of what we achieved in Q3 is organic.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Okay. So really -- the biggest driver is the $100 million, maybe a little bit more from Solacom but not as meaningful as that and that's a good way to think about it. Okay. And then I guess changing gears a little bit here on the HEIGHTS pipeline. I want to ask little bit about the strength in HEIGHTS right now. I know you said that it has longer sales cycles. But now that you're well under way with some of the sales cycles with various customers, should we start seeing business for that product line to start flow flowing in pretty regularly? Or is there some lumpiness to the sales cycles. Is there anything else? Also I guess, is there anything else you can add to what the pipeline looks like for HEIGHTS. Are there any verticals or industries that you're seeing more activity or less activity in?

Fred Kornberg -- Chief Executive Officer

Sure. So, I guess, probably most important comment I'll make on HEIGHTS is that in the first nine months of this year, we achieved more bookings in HEIGHTS than we did all of last year. So we're hitting our -- we're hitting our goals. I can tell you as we think about 2020, that business again could maybe even double from the current level that we're doing. And again, it's a little too premature for us to give you specifics. But we are seeing increased momentum in HEIGHTS. That HEIGHTS line itself does have long sales cycle. It -- I don't want to say it comes in clumps or lumpy, but it just takes a long time to predict exactly when the orders going to close.

But I would say, if there a little bit of lumpiness in terms of order flow, so we don't get concerned about it because it's just a solution sale. And once we get it in, it's important. So net net, business is up, opportunities are up and we think 2020, the business could in fact double from existing levels. But we'll have more to talk about that in September.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Okay. Great. Fantastic. And are there any concentrations of industries you're most successful in? Any kind of customer groups to call out?

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Well, it's interesting. I will answer the question this way. Right now, the government doesn't seem to be interested in HEIGHTS product. They seem to be purchasing on our SC/UPC product line and so they continue to be highly interested in that line. So we're not spending a lot of effort on the sales side with the government side. We're introducing to them. We'll get them a little comfortable, but that's not where our efforts are. We're seeing efforts broad-based across the entire commercial markets, whether it be the Caribbean, the Carnival cruise lines or the cruise ships and cellular backhaul and the opportunities that we had with SES and Argentina Claro. So we are -- we're seeing a pretty broad-based on the enterprise side.

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Okay, great. That's great. That's it from me. Thanks a lot.

Operator

And there are no further questions on the line. I'll turn the call back over to the speakers for any closing remarks.

Fred Kornberg -- Chief Executive Officer

Okay. Well, thanks, again, for joining us today, and we look forward to speaking with you again in September. Thank you very much.

Operator

This does conclude today's program. You may disconnect at any time.

Duration: 51 minutes

Call participants:

Jason DiLorenzo -- Vice President of Tax

Fred Kornberg -- Chief Executive Officer

Michael Bondi -- Chief Financial Officer

Michael Porcelain -- Senior Vice President and Chief Operating Officer

Asiya Merchant -- Citigroup Inc. -- Analyst

Christopher Quilty -- Quilty Analytics, Inc. -- Analyst

Joseph Anthony Gomes -- NOBLE Capital Markets, Inc., -- Analyst

Michael Latimore -- Northland Capital -- Analyst

Kyle McNealy -- Jefferies -- Analyst

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